China investigating carmakers over pricing: industry body

By Samuel Shen and Michael Martina

5 Min Read

Car dealers and customers walk at a second-hand car market near a newly-built residential area in Hefei, Anhui province, January 26, 2013.Stringer

SHANGHAI/BEIJING (Reuters) - A Chinese automotive association is collecting data on the price of all foreign cars sold in the country for a government agency that has fined companies for price-fixing in sectors ranging from milk powder to jewelery, officials at the industry body said.

The China Automobile Dealers Association (CADA) has been doing the research for the National Development and Reform Commission (NDRC) since last year, said Luo Lei, deputy secretary-general of the association.

Luo said the NDRC was investigating whether carmakers were setting a minimum retail price for dealers in China, which lawyers said could contravene the country's 2008 anti-monopoly law. The world's largest auto market is a key source of revenue for many foreign companies and such scrutiny would be unwelcome.

The NDRC, which is responsible for enforcing anti-trust rules on pricing, declined to comment, but lawyers said it was common for the commission to seek information from industry bodies before launching a formal investigation.

Executives at foreign carmakers said they were not aware of any research being conducted by CADA, which represents car dealers across China, or an investigation by the NDRC.

Luo said the association was looking at imported cars along with vehicles produced by foreign companies in association with local partners. "We're looking at all brands, including those imported and those made by domestic JVs," Luo told Reuters in a telephone interview, declining to say exactly when CADA began its research, when it might finish or why it had taken so long.

"We see there's a big difference in the prices of imported cars in China and their overseas prices. We're looking into that."

Another CADA official, who declined to be identified because she was not allowed to speak to the media, said the association was collecting data on overseas and domestic prices of different brands of cars as well as information on profit margins, costs for carmakers and various taxes levied on vehicles.

The official Xinhua news agency said in an editorial late last month that foreign carmakers were reaping exorbitant profits selling imported luxury cars in China and should face an anti-trust investigation.

It said some imported cars were twice as expensive in China than in overseas markets. Among those it singled out were Volkswagen's luxury division Audi and BMW.

BMW's office in China declined to comment on any possible NDRC investigation. Audi's office in the country did not respond to a request for comment on such a probe.

AUTOMAKERS SURPRISED

Foreign carmakers and their local partners control around three-quarters of the overall Chinese market. Imports are generally luxury vehicles, accounting for 5.7 percent of total car sales last year.

China has become a key market for luxury carmakers, with 2.7 million expected to be sold each year by 2020, overtaking the United States as the world's leader in the segment.

Luo said his association had sought data from dealers as well as carmakers, but he declined to comment further on how CADA was getting its information.

"This news has come out of nowhere as far as I'm concerned," said an executive at a global carmaker, who declined to be identified due to the sensitivity of the matter. "If it's true, it could be that the investigation's real target is just a few specific companies."

Tariffs on cars brought into China from abroad are 25 percent for any type of car. On top of that there is a value-added tax of 17 percent and a consumption tax, which depends on the engine size, something Luo acknowledged. "Of course, there are tax issues here ... and high profit margins don't necessarily mean a monopoly," Luo said.

Both foreign and local carmakers wield greater power in China over the sale of their vehicles compared to other countries because of relatively lax rules that govern manufacturer-dealer relationships.

Setting a suggested retail price by carmakers is a common practice in China, the United States and other major markets. But the NDRC has shown it will go after companies that fix prices. Last week it fined five foreign milk powder producers and one local firm a total of $110 million for anti-competitive behavior.

It said those companies broke the anti-monopoly law by effectively setting prices for retailers. They used contracts, direct and covert fines and rebates, as well as control over supply to get retailers to comply, the NDRC said.

On Monday, the official China News Service said the NDRC had fined five domestic jewelers $1.7 million after an investigation showed they had fixed the price of gold and platinum jewelery.

The NDRC is also investigating 60 foreign and local pharmaceutical firms. That probe has yet to conclude.

($1 = 6.1223 Chinese yuan)

Additional reporting by Norihiko Shirouzu in BEIJING and Adam Jourdan in SHANGHAI; Writing by Kazunori Takada; Editing by Dean Yates